The Grain Market

THE GRAIN MARKET Recent developments in grain trading have tended to reduce the volume of business transacted on the large exchanges of London and Liverpool. At Liverpool, "futures" trade in wheat is still active, but efforts to develop a similar market in London have met with only a modified degree of success. London was formerly pre-eminent, in the c.i.f. business by reason of the large surplus supplies which the United Kingdom imported, the financial facili ties available in London, together with well-placed ports of call in the South of England and Ireland to which laden ships could be sent to await orders. Among the causes of reduction are the smaller imports made by continental countries and the efforts of exporters to sell direct to the importers; the formation of pools and official selling agencies in Canada, Australia, Argentina and the United States which seek to obtain high prices for growers by cutting out merchants and brokers—where possible the pools sell full cargoes direct to millers; the formation of millers' combines with the object of buying large quantities direct from shippers, both brokers and merchants being ignored in these operations.

Movements of Wheat.

The statistics in the tables on the next page show the world's commerce in wheat.

World exports of wheat nearly doubled between 'goo and 1928 but with the inauguration of the self-sufficiency era, trade subse quently contracted. The period 1929-39, in fact, makes depress ing reading. It was a period of low prices, world over-production and general economic deterioration. The importing countries of Europe, without exception, brought into operation measures to re duce the inflow of foreign wheat or to exclude it entirely. Na tional development of wheat growing in Europe cut down the world trade in wheat and flour by some 20 to 3o million qrs. per annum. In the seasons 1936-39, not one country in Europe im ported as much foreign wheat or flour as in the peak or "pre depression" period of 1925-29. However, most authorities be lieve that, with the return of more stable political conditions, Europe will reverse its policy and call a halt to uneconomic production at home. There is an abundance of additional land in Canada, Argentina and Australia to enable shippers to sell still larger quantities, and there are millions of potential buyers and consumers in Asia and Africa, but they have yet to acquire a taste for wheaten bread and sufficient money to pay for it. Altera tions in the sources of supply have been many and varied within the memory of the oldest traders. Baltic ports were once important shippers, but they were pushed out of the trade by South Russia and the Eastern states of America, then came California and India, and finally the great inland States of America, the vast prairies of Canada, the fertile plains of Argentina and the vast spaces of Australia, measured in millions of square miles.

London Corn Trade Association.

The usages and terms of the London market are matters within the competence of the London Corn Trade Association, a corporate body including mem bers of all grain trade firms of consequence in Great Britain, on the Continent of Europe, and among exporters of North and South America, of India, Australia and Africa. Brokers and traders in all the principal ports of Britain find it advantageous to belong to this Association. Most of those not strictly connected with London are members of their own local associations, of which the Liverpool Corn Trade Association is the most important, followed by those of Hull, Bristol, Leith, Antwerp, Rotterdam, etc. The main object of these associations is the protection of the common interests, by defining terms of contract, by providing for arbitra tion in cases of dispute, and by taking measures to uphold the rights of traders against infringement.

The predominance of North America in the grain markets of the world is an outstanding fact, and it is not too much to say that the wheat quotations of Chicago and Winnipeg are those most regarded as deciding the course of the world's grain trade from day to day; the importance of Buenos Aires quotations has also steadily increased as Argentine crops have become greater and trade in River Plate produce has steadily expanded.

United States and Canadian Trading.

In the United States and in Canada the system of Government inspection of grain for settling grades is very efficient, and the certificate of the Government inspector is accepted as final. By far the greater part of the grain business in the United States is in connection with produce intended for national consumption or manufacture, although recently the Government has helped to keep export busi ness alive through subsidies. In Canada the relative size of over seas trade is much greater, but the system of inspection and grad ing is even more precise than in the United States and is frankly accepted by importers. In dealing with Argentina, whence the tropical passage may cause the grain to deteriorate on the voyage, the contract's basis throws this risk on the shoulders of the ex porter and wheat is sold with a guarantee of natural weight and good condition to be verified at discharge of the grain. Wheat from Australia is sold as average at time of shipment, about equal to the official standard, and somewhat similar stipulations are made in the special contract form for Indian wheat, with a guar antee in case of damage by weevil, or deterioration by the exces sive mixture of barley or any other extraneous matter. Russian wheat is now sold on sample.

The practice of grading wheat and other grain has spread from North America to other countries, but lacking the complete ele vator systems, these cannot deal with all their crops on the basis of grades. Argentina will probably be the next country to adopt the grading certificate.

Millers' Purchases.

By far the larger portion of the world's wheat crop finds its way to the flour mill although some consider able quantity is used for cattle or poultry food. The miller is in most cases the original buyer of grain for British ports, to be dis charged direct from the ship into his warehouse communicating with the mill by grain elevators and conveyors. In the British grain trade today there is very little scope for the merchant who formerly purchased a wheat cargo for apportionment in suitable quantities amongst the smaller mills.

Futures.

Apart from direct sales of overseas wheat to mil lers, considerable business is done by traders who buy wheat for shipment and, either immediately or later, sell a similar quantity for delivery at a future period. This future delivery trading, known also as marched terme or mercado d termino, originated in the United States and has been established at Liverpool for over half a century. It was adopted at Buenos Aires in 1908 and at Winnipeg in 1904. There are future delivery exchanges, including grain contracts, at several other American markets, also at Paris, Rotterdam, etc. ; formerly grain futures trading was practised at Berlin, Hamburg, Genoa, and Milan, but it was no longer per mitted under the authoritarian regimes. At Chicago futures trad ing is established for wheat, maize, oats, barley, and rye; at Win nipeg for wheat, oats, barley, and rye; at Buenos Aires for wheat, maize, and oats; in Liverpool wheat absorbs the chief attention and this is also the case in other big markets. It may be consid ered as essential that, to avoid cornering, a future delivery ex change should have an ample available supply of such qualities of wheat as are in favour with millers ; in other words, the ex change should be located on a main route of transit between the grower and the consumer. Unless this condition is fulfilled the business organization seldom succeeds.

By means of one or other of these exchanges the farmer can, if he chooses to do so, sell his crop of wheat whenever the price suits him, months before it is ready for the reaper, and thus prac tically eliminate any risk of falling prices. The miller who has purchased a cargo of wheat can sell an equal quantity in the form of contracts for future delivery. Naturally he will not find this course desirable unless there is an apparent profit between the price paid for his cargo, and that obtainable for future delivery of wheat. The miller has to buy wheat for his mill, and if he makes contracts for future delivery his next enterprise is to sell the flour to be manufactured later, and, as he achieves this, to buy in his wheat contracts. He thus makes four transactions in place of the simple purchase of wheat abroad and the sale of flour at home.

Settlement of Price Differences.

Future trading involves, in effect, a daily settlement by seller and buyer alike of the dif ference in price arising from market fluctuations, and a payment by both parties at the time of making the contracts of a cash margin according to the regulations which form part of the con tract stipulations. The penalty for non-payment of difference at the appointed time is the immediate sale or purchase, as the case may be, of all contracts standing in the name of the defaulting member in the clearing house registry.

The wheats tenderable against the Liverpool future delivery (Graded Wheat) contract are Canadian Spring wheat ; American Red wheat and Spring wheat ; Soft Winter wheat and Hard Win ter wheat, Argentine wheat (northern type and southern type) and Australian wheat ; but no wheat is tenderable which is unsuit able for general milling purposes.

Movements of Maize.

There have been great changes in the sources of supply of this cereal, but on the whole the trade has flourished.

Maize growers have grumbled at the. prices obtained but they have continued to ship. In the case of Argentina the quantities exported have steadily grown until the trade is now on a vast scale, and moreover it appears likely to increase. Argentina in deed, is regarded as the main source of supply, but in years of poor crops, the higher international price invariably encourages the United States to export. There is no country in the world that grows as much maize as the United States. The British Empire does not figure prominently as a maize exporter. The African supplies are uncertain, the Canadian climate is not suitable, and .Australia finds the international price too low. India can consume all the home crop in a normal year. As maize contains a larger per centage of moisture than wheat, it is more likely to spoil if shipped soon after harvest, or during the germinating season.

The units for maize sales on the international market are a quarter of 48olb. or a metric ton of I,000 kilos (2,2o4.61b.). American maize is sold on grade, the certificate of the U.S. grader being final. Argentine maize is sold as fair average quality and shippers guarantee full outturn on arrival; of course, the quality and condition must be right to conform to the description "fair average." South African and Kenya maize are also graded by the Government and sales are made on the basis of the official inspec tion certificate. The unit for "futures" (forward deliveries) and spot sales in Liverpool is 1 oolb. ; in America the bushel of 561b. is the legal unit. In South Africa and East Africa the bag of 2oolb. is always employed for statistics and sales.

Barley Movements.

The statistics of the commerce in barley since 190o are shown in the following tables: The moderate exports in 19oo–oI were below the average of that period, for Russia and Balkan countries alone were then averaging shipments of about I o,000,000qrs. yearly. By 191 o–I 1 the Russian trade had reached its highest point and a very active shipping business was being done. The great bulk of the Russian barley went to Germany, to feed the herds of pigs on which the Germans relied to provide the fats and meats which formed such a large part of their dietary. But the war cut off the Russian supply almost as completely as if it did not exist, and the blank shown for the period 1916-2o testifies to a complete stagnation of the trade. After the dislocation caused by the World War of 1914-18 the former volume of business in feeding barley was never recovered. Maize came increasingly into favour, while the former big importing countries, especially Germany, concentrated more and more on either home-grown feeding barley or substitute feedingstuffs. Malting barley is furnished by other and widely separated lands, chiefly California and Chile, but smaller quanti ties are obtained from Asia Minor and Australia, and lower quali ties from India, Canada, and North Africa.

On the British markets the supplies of home grown and foreign barley used to be about equal in quantity, so that brewers and maltsters could select the desired quality from either source, but times have changed, and in more recent years native types have predominated. Agricultural legislation has favoured the barley grower who, commencing with the season 1939-40, is entitled to a guaranteed average price, the difference between the guaranteed and the open market price being made good by payments obtained by a levy on home-brewed beer, malt, etc. The suitability of barley for malting is one of the technical studies of the grain trade and a really accurate judgment on a particular sample is not an easy matter. Of the feeding barley trade in Great Britain, Bristol is the chief centre. Sales are always made per 400lb. and the contracts expressly stipulate that imported barley shall not contain more than a fixed percentage of foreign matter, e.g., 3% or 5%. It was found necessary many years ago to fix definitely the amount of foreign matter tolerated, because it seemed the Russian peasant was trying to ship the family acres to importing countries and charge them as barley.

The higher qualities of malting and distilling barleys are mostly sold per 4481b., the lower qualities per 400lb., but this rule is not adhered to strictly, for so-called Chilian Forage is sold per 4481b. and on the other hand some good Asia Minor sorts are sold per 400lb.

Movements of Oats.

The world's commerce in oats is shown in the following tables: The international trade in oats has decreased in recent years and the figures of exports and imports in the table show that the quantities exchanged on the market are only one-third of those handled formerly.

The contract terms for the sale of Argentine and North Ameri can oats are the same as for other grain.

Sales on the international market are now all made per quarter of 32o1b., or metric tons of 2,204•61 lb. ; previous to the war of 1914-18 the size of the quarter varied, some qualities being always sold at 3o41b. and some at 32o1b. British oats are sold per cwt. of II21b. or per quarter of 3cwt., the former being the only legal unit. The unit in North America is a bushel of 321b., so that io bushels make one quarter of 32o1b.

The British trade in oats is chiefly in home grown grain; of the country's ordinary requirements over 8o% is produced in the British Isles, and a very large proportion is used locally for dairy ing or other cattle food and horse provender. British oats growers are subsidized, and a prohibitive tariff has been placed on foreign grown oats.

Movements of Rye.

Next follow the figures for the world's commerce in rye: The international trade was never greatly interested in the rye business. In former times Russia was the chief source of supply and Germany the chief buyer, but when the latter had a good harvest her exports exceeded her imports. A good deal of the rye was exported across Russia's land frontiers and the bulk of the trade was done direct between shippers in Russian ports and trading centres and German importing houses. Russia, Argen tina, and the United States can ship liberally when conditions are favourable, and prior to her annexation by Germany and Russia, Poland was also an exporter of this grain. The trade, however, does not expand nor is there any expectation that it will grow in the coming years. It may perhaps remain as at present, on the other hand there is no indication of any appreciable use of rye as a bread grain amongst people who hitherto have used other food. It is fairly common for France, Italy and some other countries to decree the admixture of a percentage of rye flour with wheaten flour, but this is increase by compulsion, for the millers stop the practice immediately they are free to do so. Belgium, Holland, and Scandinavia import fair quantities.

Rye is sold on British markets per quarter of 48o1b. and on the Continent the units are the quintal (2 20.461b.) and the metric ton of ten quintals. In North America rye is graded officially in the same way as other grain and is sold per bushel of 56 pounds.

British Sources of Grain Supply.

In the following tabular statements are shown the countries which furnished the grain and flour imported by Great Britain and Ireland in 1901-02 and with the quantities received from each source of supply. It will be noted that the import trade in oats has practically dis appeared and that imports of barley and flour have also dwindled. On the other hand, British imports of wheat have increased more than 5o per cent, and maize by about 20 per cent.